KOF Monetary Policy Communicator, January 2021

At today’s meeting, the Governing Council decided to keep the key ECB interest rates unchanged.

According to Eurostat’s flash estimate, Euro area annual HICP inflation was -0.3% in December 2020, unchanged from November. The ECB expects that, given oil price dynamics and the end of the temporary reduction in German VAT, headline inflation is likely to increase in the coming month. However, weak demand, notably in the tourism and travel-related sectors, as well as slack in labor markets and a higher external value of the euro keep underlying inflation pressure subdued. Once the effects of the pandemic fade, inflation is expected to recover due to an increase in demand, supported by accommodative fiscal policies.